Economist Kim Hyo-jin Reads the Economy on the Radio
Concerns in the market over the U.S.-driven rise in interest rates have been diagnosed as excessive. Appearing on CBS's YouTube channel 'Economic Instinct' on the 2nd, Shin Young Securities economist Kim Hyo-jin said the U.S. 10-year Treasury yield (the interest rate the U.S. government pays when it borrows money), which at one point surged to 5.3%, "is still within a manageable range." Kim explained that based on the Taylor Rule calculation, the appropriate rate for the U.S. stands at around 5.1%. "Even if the actual rate rose to 5.3%, that is only 0.2 percentage points above the appropriate level, not something unmanageable," he said.
While the rise in rates itself is a negative factor, what caught Kim's attention was the 'combination.' If rates rise while corporate profits are weak, it could prove fatal to the stock market. However, fundamentals are currently supported, with corporate profits—led by Big Tech—growing 30 to 40 percent year over year. Indeed, despite the sharp rise in rates, the Nasdaq index recently hit a record high.
Kim also cautioned investors who are turning to bonds amid the rate hikes. On the perception that "rates are at their peak, so now is a good time to buy bonds," he pointed out that "the probability of timing the exact top or bottom is very low." "Just as no one knew whether rates would climb so quickly from 4,000 to 9,000, or fall back just as fast after peaking last July, it is difficult to predict the precise inflection point, whether for stock prices or interest rates," he said, advising that bonds, too, are best approached through staggered purchases as part of asset allocation. He added that "bonds are assets with longer holding horizons than stocks," warning against concentrated bets aiming for high returns in a short period.
Oil price volatility was cited as another variable that undermines the accuracy of rate and inflation forecasts. "This year, oil prices started at $57, surged to $120, plunged to $69, spiked again to $105, and then came back down to the $90 level, repeatedly swinging sharply," he said. "In such conditions, accurately predicting rates and inflation is inherently difficult."
On the KOSPI's recent move of hovering in a box range around 7,000, Shin Young Securities economist Kim Hyo-jin assessed that "it may seem boring, but it is in fact a solid performance." This is despite the U.S. debate over AI investment slowing, Nvidia's stock stagnating enough to earn the nickname 'Horizontalvidia,' and Treasury yields breaking past 5%. "The current box range is being formed as the upward force from growth sectors including the AI industry clashes with downward pressure from rates and oil prices," Kim diagnosed.
